News According to Reuters, the world's two largest
cement manufacturers, France's Lafarge and Switzerland's Holcim, are in
advanced talks to merge into an entity with a stock market value of over
USD50b in what would be the industry's biggest ever tie-up. However, it
was reported that no agreement had yet been reached and that there was
no guarantee of a deal. Note that France's Lafarge is the largest
shareholder of Lafarge Malaysia with 51% stake.
Comments The news is slightly positive for LAFMSIA due to the potential synergy to be realized if the merger goes through at the international level.
We gather that Holcim Cement operates one plant in Pasir Gudang, Johor with a 1.2m MT annual production capacity while LAFMSIA also maintains a plant in Pasir Gudang with 770k MT capacity. Should the merger materialise, the Holcim plant addition would increase the combined entity’s production capacity by 8.5% to total 15.35m MT annually post-2015.
Outlook If the merger is confirmed, the Holcim addition would be positive as the combined entity could better capitalise on the strong construction growth in the south Johor region.
Forecast Earnings forecast unchanged at this juncture. We maintain our FY14E and FY15E core earnings at RM403m and RM451m, respectively. We do not impute any earnings impact at this juncture pending the formal announcement of the merger deal.
Rating Maintain MARKET PERFORM
Maintain MARKET PERFORM on our belief that the effect of positive construction demand is largely neutralised by rising cost pressures.
Valuation Maintain our Target Price of RM9.50 based on a Fwd. PER of 20.0x on FY14E EPS of 47.5 sen. Our Fwd. PER of 20.0x reflects a positive +0.5SD above 3-year Mean PER. In our view, the premium on Lafarge is justified due to its decent dividend yield and status as the market leader.
Risks to Our Call Higher-than-expected volatility in cement prices
Higher-than-expected increase in manufacturing costs.
Source: Kenanga
Comments The news is slightly positive for LAFMSIA due to the potential synergy to be realized if the merger goes through at the international level.
We gather that Holcim Cement operates one plant in Pasir Gudang, Johor with a 1.2m MT annual production capacity while LAFMSIA also maintains a plant in Pasir Gudang with 770k MT capacity. Should the merger materialise, the Holcim plant addition would increase the combined entity’s production capacity by 8.5% to total 15.35m MT annually post-2015.
Outlook If the merger is confirmed, the Holcim addition would be positive as the combined entity could better capitalise on the strong construction growth in the south Johor region.
Forecast Earnings forecast unchanged at this juncture. We maintain our FY14E and FY15E core earnings at RM403m and RM451m, respectively. We do not impute any earnings impact at this juncture pending the formal announcement of the merger deal.
Rating Maintain MARKET PERFORM
Maintain MARKET PERFORM on our belief that the effect of positive construction demand is largely neutralised by rising cost pressures.
Valuation Maintain our Target Price of RM9.50 based on a Fwd. PER of 20.0x on FY14E EPS of 47.5 sen. Our Fwd. PER of 20.0x reflects a positive +0.5SD above 3-year Mean PER. In our view, the premium on Lafarge is justified due to its decent dividend yield and status as the market leader.
Risks to Our Call Higher-than-expected volatility in cement prices
Higher-than-expected increase in manufacturing costs.
Source: Kenanga
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